The popular progressive idea of using the United States Postal Service to help families struggling with their finances escape the trap of predatory payday loans was launched this week by a prominent senator expected to run for the White House in 2020 is put back on its feet.
The Postal Banking Act announced by Sen. Kirsten Gillibrand (D-NY) on Wednesday would introduce a new set of basic financial services in USPS branches. For the tens of millions of families who either do not have a bank account or are classified as “underserved” because they also depend on expensive alternatives such as payday loans, the idea could open up new opportunities to save money or overcome unexpected expenses without taking the risk get into almost permanent debt.
The campaign to get USPS to offer such services has been going on for a long time, just in a tender and calm way. The new bill increases the stakes dramatically and creates a rallying point for both proponents of the idea – and their opponents, who have both legislative majorities and the White House.
“I think she’s probably doing a different calculation,” said Mehrsa Baradaran, law professor and eminent expert on post banking. “That is a brave step. If you put this out there and say, ‘Hey, let’s do this,’ then more people could get on board and get it done. “
One’s bold risk is the other’s misjudgment. Many proponents of the idea, stung by the damage done to the USPS on Capitol Hill in the past, made a conscious decision years ago not to bring this idea into Congress and instead focus on using the agency’s existing powers to use for action.
“We’re glad Sen. Gillibrand’s enthusiasm was accepted into the choir,” said Katherine Isaac of the Campaign for Postal Banking, “but we’re still pushing for the things the Postal Service can do now.”
A fake crisis and a real opportunity
The idea that Gillibrand is promoting has been known in progressive circles for more than four years. Its full story is much longer – post offices actually performed similar services in the early twentieth century – but as a modern political cause in an era marked by a Wall Street crash and a staggering inequality of wealth and opportunity, it is now in its fifth year.
The Inspector General of the USPS The push began in 2014 with a report that built on Baradaran’s work detailing how the agency could begin offering financial services. Prominent financial reporter David Dayen quickly picked up the report as a solution for the stubborn predators the payday lending industry that we know now Siphons billion dollars out of poor communities every year by trapping families in debt cycles. Senator Elizabeth Warren (D-MA) soon got the idea massive signal amplification others were unable to, and post banking suddenly became fashionable.
The IG’s results came in part from a desire to help USPS get on a firmer financial footing. While the idea was phrased as a blessing to the public, the report also made the bottom line clear: the agency could generate around $ 9 billion in new revenue annually.
The rebirth of post banking came about because of the feeling that the agency was in a financial crisis. But this crisis is a fake that was deliberately created by lawmakers when Congress imposed it in 2006 an absurd accounting rule on the service. The change makes his future obligations to retired postal workers seem artificially bleak. The semblance of bankruptcy that has haunted USPS for more than a decade would largely disappear if lawmakers were to reverse this pension funding regime.
This legislative debacle of 2006 shows why the staunchest proponents of post banking spent four quiet years in administration. Warren passed roughly 250 laws during her Senate tenure, none of which are tied to post banking.
To the extent that Gillibrand is breaking new ground here, it can, in part, because others were suspicious that a Congress headed by Senator Mitch McConnell (R-KY) and Rep. Paul Ryan (R-WI) could do more harm as well. Gillibrand is the second congressional supporter to try the legislative path. MP Cedric Richmond (D-LA) presented its own version of the idea back in 2014. It died on the committee, but neither did it become the specter of policy deterioration that some people working on the idea fear.
Advocacy behind the scenes has been slow. But it has also shown signs of progress immediately following the IG’s report, Dayen’s reporting, and Warren’s public statements on the idea helped create an opportunity for change.
The USPS initially rejected the pressure, make a concise statement that both promised to explore possible extensions to financial services and warned that the agency would not go forward on its own. “Our core function is delivery, not banking,” it said.
Proponents kept up the pressure and eventually eased that initial resistance. USPS agreed in a 2016 agreement accompanying contract negotiations with the American Postal Workers’ Union (APWU) to review pilot versions of post banking. Those talks have continued since then, Isaac said.
“Different players have different tactics. We looked at the situation in 2014 and 2015 and decided to go in the non-legislative direction, ”said Isaac. “Sen. Warren knows this and has supported that direction and only met with the Postmaster General two months ago to urge them to look into pilots across the country to find out what works and what doesn’t. ”
A USPS spokesman declined to comment on the Warren meeting or the state of play on the pilot program, which was approved in the 2016 negotiation process.
The delicate balance between price and sustainability
However it may happen, a version of post banking that includes alternatives to payday loans would be a tremendous relief to the masses of the working poor who are currently only a car repair shop away from a for-profit debt trap.
But unless the new credit grade can be truly affordable to both the users and anywhere near profitable to the lender, neither version of such a change can survive very long. The details of Postbank loan pricing therefore become incredibly important to both the public and USPS.
“When it comes to saving mail, it’s about revenue. But Senator Gillibrand concluded from my point of view that this is a public option for people without a bank account, ”Baradaran said. “Super low interest loan, probably way too low, but she really wants to be bold and say it’s about the public, not saving the post.”
Other organizations that have tried to get payday lenders out of the way may have struck the balance between sustainability and non-exploitative pricing. But it’s far from where Gillibrand’s bill is going.
Such small dollar short term loans can break even on interest rates about one-sixth the average payday loan price. It can even be profitable without having to trap people in endless loan cycles, since Experiments with modest regulation in Colorado have shown.
Research suggests that low-cost alternatives to payday loans are only sustainable at mid-double-digit annual interest rates, said Alex Horowitz of the Pew Charitable Trusts in an interview. Such products would generate some revenue, but not necessarily at the level expected in 2014 by those concerned about USPS’s bottom line. Go well over 100 percent, and Horowitz’s research suggests people are starting to think that you are hunting down poor people in a newer, gentler way.
Gillibrand’s bill would undo this delicate balancing act between what is sustainable to a lender and what is fair to a borrower. While a payday lender currently charges about $ 350 total to borrow $ 400 for three months, the current alternatives offered by credit unions charge about $ 39 for the same loan. The credit unions say they are about to break even at this price, and could even be profitable if they charge around $ 60, according to Horowitz.
According to Gillibrand’s Postbank bill, USPS would charge $ 1.12 for the same three-month loan product of $ 400, Horowitz calculated.
This is a recipe for a free money store with a blue and white eagle logo on the front. And that would be a very good thing for low-income families – and for the wider economy that relies on the growth of low- and middle-income families.
But it is also apt to provoke a backlash among the narrow-minded Conservatives who caused the USPS’s fake funding crisis in the first place – exactly what the people who have advocated this cause for years have feared from legislative approaches. If the perfect is sometimes the enemy of the good, Gillibrand may have just delivered the “perfect” side of a political risk equation that others have been diligently working on for half a decade on the opposite, more achievable end.
“We can’t predict the future in this regard,” said Isaac of Campaign for Postal Banking. “But we want to work with anyone who thinks it’s a good idea. Time will tell which strategy is the right one. “